Obscene Oil Profits Not Really Obscene

A comment I heard on Thursday morning's Free Beer & Hot Wings radio show set my teeth on edge. I couldn't shake the idea that a lot of people out there would take the comments made by one of the people on the show to heart. The comment that started it all?

“Everyone knows the oils companies are making obscene profits.”

Really? Not just profits, but obscene profits? OK, could someone please help this poor ignorant blogger understand what is meant by obscene profits?

I know what profits are: the amount of money left after all of the costs, fees and taxes are subtracted from a business's income. Does that sound about right?

So, at what gross profit margin do profits become obscene? 5 percent? 10 percent? 20 percent? More? Less?

The obscene profits mentioned on the radio show as well as by Hillary Clinton aren't as much as most people would think. Hillary had mention ExxonMobil by name during one of her campaign stops, saying she would take their 'excess' profits from them to use for social programs. So let's look at those obscene 'excess' profits to see what it really means. Let's use Exxon Mobil, since Hillary is looking at them to fund her pet social programs.

For 2007, ExxonMobil's profit margin was 11.23%. That means they made a little over 11¢ for every dollar in income. As far as most companies go, 11% isn't large. There are a lot of companies that make far more than that (the company I work for has a much larger profit margin than ExxonMobil), but their profits aren't considered obscene. Isn't there some kind of double standard being applied here?

What triggers this visceral response that their profits are obscene is the vast size of the profits: On $361 billion (that billion, with a 'b') income, they made approximately $40.5 billion in profits. That's about 11%. That's in the normal range for most businesses. Again, is it the 11% that folks consider obscene, or the $40.5 billion? And of that $40.5 billion, how much of that goes to stockholders, most of which are mutual funds held by retirees. pension funds, or contributors to 401(k) plans? Does Hillary really think she can do more with those 'obscene' profits than those directly benefiting from them?

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